January 25, 2017

Circular Flow Model Notes:

What is Circular Flow?

• It represents transactions in an economy by flows around a circle. 

What is Household?

• It is a person or a group who share an income.

What is a Firm/Business?

• Organization that produces goods and services for sell. 

What is a Factor Market? (Resource Market)

• Firms buy.
• Households sell. 

What is a Product Market?

• Firms sell.
• Households buy.

What is Household role?

• Sells resources.
• Buys products. 

What is a Firm/Business role?

• They buy resources.
• Sell products. 

What is the Governments role?

• Both consumers & produces in both markets.

Supply Formulas

What is Marginal Revenue?

• It is the additional income from selling and additional unit of good. 

What is Fixed Cost?

• It is cost that does not change no matter how much of a good is produced 
• Ex: Salary, Rent, and Insurance

What is Variable Cost?

• Is is the cost that rises or falls depending upon how much is produced. 

Abbreviations 

Q= Quantity 

TFC= Total Fixed Cost

TVC= Total Variable Cost

TC= Total Cost

MC= Marginal Cost

AFC= Average Fixed Cost 

AVC= Average Variable Cost 

ATC= Average Total Cost 

Equations 

• TFC + TVC = TC 
• AFC + AVC = ATC
• TFC/Q = AFC
• TVC/Q =AVC
• TC/Q = ATC
• AFC x Q = TFC
• AVC x Q = TVC

Demand and Supply Overview

DEMAND 

• It is the quantities that people are willing and able to buy at various prices.

LAW OF DEMAND

• inverse relationship between prices and quantity demanded.

WHAT CAUSES CHANGE IN QUANTITY DEMANDED?

• Change in price.

WHAT CAUSES A CHANGE IN DEMANDED?

1. Change  in number of buyers (population) 
2.  Change in buyer's taste (preference and advertisement)
3.  Change in income (normal goods and inferior goods)  
4.  Change in price of related goods (substitute and complementary)
5.  Change an expectation (future) 

SUPPLY 

• It is quantities that producers or sellers are willing and able to produce and sell at various prices.

LAW OF SUPPLY  

• It is the direct relationship between price and quantity supplied 

WHAT CAUSES A CHANGE IN SUPPLY? 

•  Change in price 

WHAT CAUSES A CHANGE IN SUPPLY?

1.  Change in the number of sellers 
2.  Change in cost of production 
3.  Change in technology 
4.  Change in taxes or subsides (money that government provides)
5.  Change in the weather 
6.  Change an expectations 

January 19, 2017

Equilibrium Notes 

What is Equilibrium? 

• It is a point at which the supply curve intersect with demand curve? 
• (When demand & supply meet = Equilibrium) 

What is Excess Demand?

• It is when Quantity demanded is greater than Quantity supplied  -> Results in shortage 
•  consumers can not get quantity of items they want  
• QD>QS

What is the price ceiling?

• It creates shortage 
• It is when government puts legal limit on how high the price of a product can be. 
• Ex: gov. sets price ceiling on flu shots & rent control 

What is Excess supply?

• It is when quantity supplied is greater than quantity demand -> results in surplus 
• Producers have inventory they can't get rid of. 

What is price floor?

• It is the lowest legal price a commodity can be sold at. 
• Prevents prices from becoming too low 
• Ex: minimum wage 

January 11, 2017

 Elasticity of Demand Notes

What is elasticity of demand?

•  It is the measure of how consumers act to a change in price.

What is elastic demand?

•  It is a demand that is very sensitive to a change in price. 
• Product is not a necessity 
• There are available substitutes 
•  Ex:  steak, fur coats, and soda 
• E>1

 What is inelastic demand? 

•  It is the man that is not very sensitive to change in price. 
• Product is a necessity 
• Few to no substitutes
•  Ex: Gas & Insulin
• E<1

What is Unitary Elastic?

• It is the demand for a good if a change in the price of that good causes an equal change in quantity demanded. 
• E=1

How to calculate PED?

• Step 1: Quantity 

New Quantity - Old Quantity 

          Old Quantity

• Step 2: Price

New Price - Old Price 
          Old Price

• Step 3: PED

  % change in Quantity
    % change in Price



What is Total Revenue?

• It is the total amount of money a firm receives from selling goods & services. 

How to calculate Total Revenue? 

Total Revenue = Price x Quantity 

January 9, 2017

Review for Quiz

What are the four factors of production? 

1. Land 
2. Labor 
3. Capital 
4. Entrepreneurship

What is the difference between Norman Opinion & Positive Economics?

• Norman-  It is the attempt to prescribe how the world should be. 
•  Positive economics-  It is the attempt to describe the world as it is. 

What is the difference between scarcity and shortage?

• Scarcity- It is the unlimited want but limited resources. 
• Shortage- It is when quantity demanded exceeds quantity supplied  

Difference between trade off and opportunity?

•  Trade off-  It is  the alternative that we sacrifice when we make a decision. 
•  Opportunity cost- It is the most desirable alternative giving up as a result of a decision. 

 How to calculate opportunity cost? 

What is the law of increasing opportunity cost?

•  As production increases the opportunity cost increases.

* know the points of the graphs*

January 5, 2017

Three Types of Movements that Occur Within PPC

1. Inside the PPC
2. Along the PPC
3. Shifts of the PPC

What does "Inside the PPC" graph look like?

What does "Along the PPC" graph look like?

What does "Shifts of the PPC" look like?

January 4, 2017

Factors of Production 

1. Land
2. Labor 
3. Capital (Human capital & Physical capital)
4. Entrepreneurship 

What is Land?

• It is natural resources.

What is Labor?

• It is work being exerted.

What is Human Capital?

• It is when people acquire skills & knowledge through experience & education.

What is Physical Capital?

• It is money, tools, buildings, equipment, & machinery.

What is Entrepreneurship?

• In order to become an entrepreneur one must:
• Take risks.
• Innovate.

What are Tradeoffs?

• It is an alternative that we sacrifice when we make a decision. 
• Scarcity leads to tradeoff 
• Ex: A farmer who plants tomato in one spot can't produce corn in same spot. 

What is Opportunity?

• It is the most desirable alternative giving up as the result of a decision.
• It is a type of trade off.

What is Guns or Butter?

• It is a phrase referring to trade offs that the government makes when choosing whether to produce more or less military or consumer goods. 

What is thinking at the margins?

• It is deciding whether to add or subtract one additional unit of some resources.

What is a Production Possibilities Graph?

• It is a graph that shows alternative ways to use economy recourses.
• Straight/Curved

What are the 4 key assumptions?

1. Only two goods can be produced.
2. Full employment of resources. 
3. Fixed resources (Factors of Production)
4. Fixed technology 

What is Efficiency?

• It is the using of resources in such way to maximize production for goods and services.
• Increase profit.

What is Underutilization?

• It is the opposite of efficiency using fewer resources than an economy is capable of using.
• Decrease profit.

January 3, 2017

Basic Concept of Economics

1. Macroeconomics vs. Microeconomics 
2. Positive economics vs. Normative economics 
3. Needs vs. Wants 
4. Scarcity vs. Shortage 
5. Goods vs. Wants (Capital & Consumer) 

What is Macroeconomics?

• It is the study of the economy as a whole 

• Inflation
• Minimum wage 
• International trade 

What is Microeconomics?

• It is the study of individual or specific units of the economy.
• How households & firms make decisions & how they interact in markets. 
• "Trees but not forest"

What is Positive Economics?

• It  is the attempt to describe the world as is.
  
• Very descriptive 
• Collects & Presents facts 

What is Normative Economics?

• It is the attempt to prescribe how the world should be. 
• Opinion based  

What is Needs?

• It is the basic requirements for survival.
• Water, food, and shelter.

What is Wants?

• It is simply desires.

What is Scarcity?

• It is the most fundament
  
  al economic problem facing all societies. 
• Unlimited want but limited resources 
• Permanent 

What is Shortage?

• It is the quantity demanded exceeds quantity supplied.
• Temporary

What is Goods?

• It is tangible commodity (touch/hold/feel)
• Can be bought, sold, traded, and produced.
• Capital goods- Items used in the creation of other goods.
• Consumer goods- Intended for final use.

What is Services? 

• It is work that is performed for someone.